In a time when HR professionals are struggling to find, hire, and retain employees, the competition for talent is becoming more challenging by the day. One of the first things employees look at before even receiving a job offer is their compensation package.
What is a compensation package?
Think of a compensation package as a bundle of rewards creatively put together to recognize employees’ contributions and inspire their best work. This is more than an employee’s monthly salary. It includes health insurance, retirement schemes, vacation days, bonuses, equity shares, and additional benefits such as flexible work schedules or educational stipends. Sometimes, it may also offer opportunities for career development, recognition for performance, or contribute to a positive work culture.
As the new world of work evolves, it’s important to continually refine and adapt these compensation strategies to align with emerging skills and knowledge. It’s about crafting strategies that not only meet legal standards but also foster a culture of recognition and growth. This package is essential for attracting, retaining, and motivating top talent, as well as for developing your employee value proposition.
As the new world of work evolves, it’s important to continually refine and adapt these compensation strategies to align with emerging skills and knowledge. It’s about crafting strategies that not only meet legal standards but also foster a culture of recognition and growth. This package is essential for attracting, retaining, and motivating top talent, as well as for developing your employee value proposition.
What to include in a compensation package
Direct compensation
- Salary: Offering competitive pay is the number one contributor to attracting and retaining talent.
- Retirement savings: Contributions to retirement plans such as the 401(k) plan in the US, are a key factor in long-term financial security for employees.
- Paid time off (PTO): Generous PTO policies can significantly improve employee wellbeing and productivity.
- Health insurance: Offering comprehensive health insurance is important for supporting employees’ physical and mental health.
- Performance bonuses: Bonuses tied to performance metrics incentivize and reward high achievers.
- Profit-sharing: Sharing a portion of profits with employees can boost morale and promote a feeling of collective ownership.
- Stock options: Providing stock options aligns employee interests with the company’s long-term success.
- Travel reimbursement: Covering travel expenses acknowledges employees’ effort and time in business travel.
- Relocation bonuses: Offering relocation packages will help you attract talent from a wider geographic area.
- Wellbeing subscriptions: Subscriptions to services such as gym memberships, the Headspace meditation app, Plum online therapy, or Juno points demonstrate a commitment to employee wellness.
- Home office stipends: Support for remote work setups through home office stipends reflects the evolving work environment. For example, you can provide a lump sum on a virtual card, allowing employees to order what they need.
Indirect compensation
- Career development: Opportunities for professional growth are a major draw for career-oriented employees. This can include subscriptions to Udemy, paying certifications, or even in-house company mentorship programs.
- Flexible work arrangements: Hybrid, remote within the country, or globally distributed remote setups are highly valued options for their flexibility and contribution to improving work-life balance.
- Corporate discounts: Discounts on products or services are a tangible perk that employees can enjoy regularly.
- Employee recognition programs: Recognizing employee’s achievements fosters a positive workplace culture. This can include competitions, bonuses, and promotion cycles.
- Free meals: Providing free meals at work is a convenient and appreciated benefit.
- Company car, cell phone, and laptop: Providing essential work tools like a company car, cell phone, and laptop enhances job performance and convenience.
Compensation package example
To illustrate how a comprehensive compensation package can be structured, let’s take a look at this theoretical example. This compensation package Excel template showcases a variety of compensation elements, giving a clear picture of what a great package might look like.
Developing a total compensation package
Developing a total compensation package involves several key steps, as highlighted in the Harvard Business Review article “Linking Compensation Design and Outcomes.”
- Align with strategic goals: Ensure the compensation package aligns with the organization’s strategic objectives. Misalignment can lead to unintended outcomes, such as encouraging short-term gains at the expense of long-term risks.
- Tailor to specific objectives: The approach to compensation should vary depending on the company’s strategic goals, which may focus on growth, turnaround, business transformation, competing as a private organization, or aligning with owners in the absence of equity options.
- Choose appropriate metrics: Select metrics that reflect the business strategy and current circumstances, and regularly review and adjust these metrics to maintain relevance.
- Set clear targets and incentives: Establish specific numerical targets for key metrics and implement a payout curve that allows for various outcomes, ensuring flexibility and fairness in rewarding employees.
- Incorporate companywide objectives: Base compensation plans on achieving overall organizational targets, with potential adjustments for individual performance.
- Balance short-term and long-term incentives: In situations like turnarounds or aggressive growth strategies, balance the need for immediate results with long-term sustainability and growth.
- Adapt to business changes: Be prepared to adjust compensation plans in response to changing business conditions, such as market fluctuations or internal challenges.
- Consider alternative incentives: Explore different forms of compensation, especially in private companies, such as above-market cash compensation, phantom equity, or multiyear cash incentives based on cumulative performance metrics.
- Foster long-term orientation: For companies where traditional equity isn’t an option, use alternative methods like profit-sharing or economic-profit-sharing programs to align employee interests with long-term company goals.
- Address contemporary challenges: Adapt executive compensation to address current business challenges, focusing on areas like employee health and safety and company liquidity.
- Revisit and adjust: Continually review and update the compensation plan to ensure it effectively serves broader stakeholder interests and remains aligned with evolving business strategies and conditions.
Our course Developing a package of benefits will be useful for anyone interested in effective HR management through optimising benefits and strategically harnessing their potential for the company.
When you learn how to extract business value from the benefits package for your company, you move from being an implementer to being a strategic business partner, your value in the market (and in the company) will increase immediately!
